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chapse said:
My fuzzy math tells me if you have the 100K to purchase the car, paying for it may not be a good idea . I can get a zero down payment $100,000 loan for 7% for 5 years, total cost is $1980.12/month or $118,807.19 for 5 years. I can also get a 6.0% 5 year CD at my credit union which yields me $130,000 after 5 years, so if my fuzzy math serves me well, I would have made $11,193 if I finance it vs, paying outright, or in other words get the 997S for free over the standard 997.
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SciFrog said:Quote:
chapse said:
My fuzzy math tells me if you have the 100K to purchase the car, paying for it may not be a good idea . I can get a zero down payment $100,000 loan for 7% for 5 years, total cost is $1980.12/month or $118,807.19 for 5 years. I can also get a 6.0% 5 year CD at my credit union which yields me $130,000 after 5 years, so if my fuzzy math serves me well, I would have made $11,193 if I finance it vs, paying outright, or in other words get the 997S for free over the standard 997.
You are forgetting taxes on the CD... Buying cash is better in this case.
Also you are compounding the interest on the CD, but you need to shell out the loan payments every month. If you were taking the loan payments out of the CD every month, no more compounding. Even without the tax argument, the interest rate is higher on the loan (sorry if I lost a few people in the process of this boring paragraph).
May 20, 2006 6:42:10 PM
May 20, 2006 10:18:47 PM
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If the interest is taxed at 30%, it's about a wash versus your total hit on 60-month financing.
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You are forgetting taxes on the CD... Buying cash is better in this case.
Also you are compounding the interest on the CD, but you need to shell out the loan payments every month. If you were taking the loan payments out of the CD every month, no more compounding. Even without the tax argument, the interest rate is higher on the loan (sorry if I lost a few people in the process of this boring paragraph).
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chapse said:
The interest rate on the loan is higher, but you need to understand that the total interest is being paid on the priciple which is decreased as the loan is being paid.
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Correct, but this is offset if you include the fact that you need to shell out the loan payment every month right from the start to pay not only interest but mostly principal. If you paid cash, you could get interest on the 2K you didn't have to pay every month.
Another way to put things is imagine that you need to take 2K out of the CD every month to pay for the loan, still think you will get 30K+ interest at the end of the CD?
Also don't forget that taxes on the CD are paid annually, thus reducing the compounding on the CD.
To make a full analysis, you need to consider all cash flows and their date and discount them all to a certain point in time. Everybody's case will be slightly different but bottom line is that at equal interest rate, if you have to pay taxes on the CD, you are better off paying cash if you don't need the money for something else.
BUT on the bright side, you would still have a 997S no matter what kind of financial moves were made.
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